The economic effects of the recession on the Baltimore/Washington, D.C., market has spurred aggressiveness from retailers and declines in foodservice sales.
“Companies are tightening their belts and spending a little bit less on corporate dinners and charge accounts. The high-end restaurants are getting less business,” said Gus Pappas, president of Pete Pappas & Sons Inc., Washington, D.C. “Your ethnic grocery stores seem to be doing a bit better.”
With a sizeable Asian and Hispanic population, the Washington metropolitan area has many grocery stores that cater to these groups, and a plethora of affordable ethnic restaurant options.
“The Mexican restaurants, those with middle of the range cost per plate for food, are doing much better,” added Pappas. “The high-end quality stuff has the same ingredients for their plates — just less of it.”
Pappas said his restaurant clients tell him whereas three or four years ago they would have two or three seatings a night, now they are finished by 8 p.m., with just one seating.
Jason Lambright, president of Little Lamb Produce Inc., Jessup, Md., takes his assessment a step further. “People have stopped going to restaurants because they are trying to save money, but they’ve got to eat.”
Lambright suggested that supermarkets do their part to help the economy by keeping prices down and gleaning a smaller percentage of profit from produce.
John Gates, president of Lancaster Foods Inc., Jessup, who has about 70% retail clients and 30% foodservice, said retailers’ strategies in the down economy are helping boost their sales.
“I think the retailers have all become very aggressive in this recession, and it has led to increased sales for them,” he said. “I would say if there’s a loser it would be the foodservice end. More people are going to the supermarket than are going to restaurants.”
Roy Cargiulo, sales manager for Keany Produce Co., Landover, Md., which has 75% foodservice clients, said overall business has dipped about 10%, while business from some foodservice customers is down as much as 20%.
“What is encouraging right now, over the last three months, we’ve actually seen an upturn in business,” he said. “For whatever reason, there seems to be a lot more confidence in the economy. People seem to have a little more disposable income on the foodservice side.”
Cargiulo said that, beginning with April’s cherry blossom season in Washington, D.C., there has been a spike in sales thanks in part to tourists, business travelers and conventions and conferences.
Rob Mumma, senior vice president of business development for Belair Produce Co. Inc., Hanover, Md., has not been so lucky, with its convention business having lost the annual Rite Aid convention.
“You generally had quite a few people. There used to be thousands of folks for the convention, hotel rooms and peripheral dining,” he said.
Pappas said the downturn has not forced restaurants to downgrade their food, and organic sales are back to pre-2008 sales levels.
Tony Vitrano, president of the Tony Vitrano Co., Jessup, said business has not differed from past years, except that he has had to increase his oversight of customer payments.
“Customers are slowing down with paying, even going out of business,” he said. “Some have complained that they’re having a hard time getting paid, and business is slow on their end.”
Chad Berman, vice president of operations for Belair Produce Co. Inc., Hanover, Md., said he has had several customers go out of business this year.
“Our accounting department has been very busy the last few months. Collections in general has been hard. Keeping an eye on receivables has been a full time job in here,” he said. “Nobody’s really paying their bills, and we have to have somebody go get the money full time.”
Lambright said it is especially dangerous for suppliers who are accustomed to giving customers six or eight weeks or more to pay a bill.
“Only in this business can you keep somebody’s money for eight to nine weeks,” said Lambright. “Every day you’ll hear this guy got stuck for $100,000.”
Lambright suggested cutting customers off at three weeks.
“At 12-14 weeks, the bill can be $400,000, and you just cross your fingers,” he said.
Don Darnall, executive director of the Maryland Food Center Authority, which oversees the Maryland Wholesale Produce Market, Jessup, said two companies that he had renting spaces received PACA violations and were forced to go out of business. He could not say the cause for the PACA violation, but only that the space was quickly absorbed by other tenants.
Some suppliers highlighted ways in which they are diversifying their businesses in order to cater to evolving customer needs.
“More sales people are out looking for more things to sell. We’re trying to offer more things to sell that are outside of produce,” Berman said. “I see us working for the customers a little longer.”
Berman also said that the price of merchandise has stayed down in the past six months, and Belair has passed those savings on to customers.
“If it’s expensive, they’re not going to buy it,” he said. “Retailers are a big mover of our produce. When it’s high in price, the retailer backs off of it and the price to the wholesaler goes down.”
Pappas characterized the changes in consumer behavior as money-conscious shopping, saying that business to small grocery stores has increased over the past year.
“Where we’ve seen a little bit of slacking is in high-end restaurants and big chains business,” he said, explaining that sales to ethnic supermarkets are up and smaller neighborhoods stores are winning out over large chains.
Darnall, like many produce suppliers in the area, is starting to think about what recovery will be like, and envisions a slow curve and a very different result.
“Companies are going to have to probably be very much aware of reinventing themselves a little bit,” he said. “It’s a different strategy for survival based on a different customer mix. Don’t think the customers will come back as strong as before.”
Jerry Chadwick, vice president of marketing and business development for Lancaster Foods Inc., thinks the economy has stabilized, and he is hoping to see some trickle down effect of the stimulus package.
“Yes, I think that we are starting to turn the corner,” he said, though he was not optimistic about housing and employment numbers.
“There were a number of plans that were in motion,” said Darnall, describing tenants who, until the economy soured, had intended to enclose their docks and make other capital improvements.
“Everyone is watching cash, and it puts everything on hold, and then you wonder at what point does everyone take a breath and start moving forward again.”